An end of financial year checklist for SMSFs

First thing to note is that June 30 falls on a Monday this year so be very careful about doing anything for your client’s fund after the 28th as funds transferred from Friday, 28 June risk not reaching the destination account before the deadline. Remember it is when the funds are received by the superannuation fund that counts.

2. Review concessional contributions – $25,000 under 59 and $35,000 if you were 59-64 this year and then work test applies for 65+.

Maximise contributions up to concessional contribution cap but do not exceed the concession limit. The sting has been taken out of excess contributions tax but you don’t need additional paperwork to sort out the problem. So check employer contributions on normal pay and bonuses, salary sacrifice and premiums for insurance in super as they may all be included in the limit.

3. Review non-concessional contributions

Has your client considered making non-concessional contributions to move investments into super and out of their personal, company or trust name? Maybe your client has proceeds from an inheritance or sale of a property sitting in cash. As shares and cash have increased in value you may find that personal tax provisions are increasing and moving some assets to super may help control the tax bill. Is your client nearing 65? If so, then consider the contribution timing strategy to take advantage of the “bring forward” provisions before turning age 65 to contribute up to $450,000 this year or $150,000 this year and up to $540,000 next year before your client turns 65.

4. Co-contribution

Check your client’s eligibility for the co-contribution and if they are eligible take advantage. Note that the rules have changed and it is not as attractive as previously, but it is free money – grab it if your client is eligible. To calculate the super co-contribution your client could be eligible to receive based on their income and personal super contributions, use the super co-contribution calculator on the ATO’s website.

5. Spouse contribution

If your client’s spouse has assessable income plus reportable fringe benefits totalling less than $10,800 then your client should consider making a spouse contribution. The ATO provides guidance on this.

6. Over 65? Does your client meet the work test? (The 40 hours in any 30 days rule)

You should review your client’s ability to make contributions if they have reached age 65, as they must pass the work test of 40 hours in any 30-day period during the financial year, in order to continue to make contributions to super. The ATO also offers guidance on this.

7. Check any payments your client may have made on behalf of the fund.

It is important that you check for amounts that may form a superannuation contribution in accordance with TR 2010/1, such as expenses paid for on behalf of the fund, debt forgiveness or in-specie contributions, insurance premiums for cover via super paid from outside the fund.

8. Notice of intent to claim a deduction

If your client is planning on claiming a tax deduction for personal concessional contributions they must have a valid ‘notice of intent to claim a tax deduction’. If they intend to start a pension this notice must be made before the pension is commenced. Many trustees like to start the pension in June and avoid having to take a minimum pension but make sure your client has claimed their tax deduction first.

9. Contributions splitting

Consider splitting contributions between your client’s spouse, especially if one of the following is applicable:

- their family has one main income earner with a substantially higher balance 

- if there is an age difference where they can get funds into pension phase earlier

- if your client can improve their eligibility for concession cards or pensions by retaining funds in superannuation in a younger spouse’s name.

This is a simple no cost strategy I recommend everyone look at it, especially with the government previously trying to implement increased tax on higher balance accounts earnings.

10. Off-market share transfers (selling shares from your own name to your fund)

The proposed ban on off-market share transfers into an SMSF never got through. If your client wants to move any shareholdings into super they should still act early.

11. Pension payments

If your client is in pension phase, ensure the minimum pension has been taken. For transition to retirement pensions, ensure they have not taken more than 10 per cent of their opening account balance this financial year.

The minimum payment amounts have been by 25 per cent for the 2012/2013 years. The following table shows the minimum percentage factor (indicative only) for each age group.

Age minimum % withdrawal (in all other cases)

Under 65: 4 per cent

65-74: 5 per cent

75-79: 6 per cent

80-84: 7 per cent

85-89: 9 per cent

90-94: 11 per cent

95 or more: 14 per cent

12. Sacrificial lamb

Think about having a sacrificial lamb, a second, lower-value pension that can sacrificed if the minimum is not taken. In this way if your client pays only a small amount less than the minimum they only have to lose the smaller pension's concession rather than the concession on their full balance.

13. Reversionary pension is often the preferred option to pass funds to a spouse or dependent child

You should review your client’s pension documentation and check if they have nominated a reversionary pension. If not, consider their family situation and options to have a reversionary pension especially with the new deeming of pension rules coming in on 1 January 2015. This is especially important with blended families and children from previous marriages that may contest your client’s current spouse’s rights to their assets. Also consider reversionary pensions for dependent disabled children.

14. Review capital gains tax position of each investment

Review any capital gains made during the year and over the term your client has held the asset and consider disposing of investments with unrealised losses to offset the gains made. If your client is in pension phase then consider triggering some capital gains regularly to avoid building up an unrealised gain that may be at risk to government changes in legislation like those proposed this year. Remember if your client plans to sell an asset for the next three years the Temporary Budget Repair Levy may mean two per cent extra tax.

15. Review and update the investment strategy not forgetting to include insurance of members

Review your client’s investment strategy and ensure all investments have been made in accordance with it, and the SMSF trust deed. Also, make sure the investment strategy has been updated to include consideration of insurances for members.

16. Collate and document records of all asset movements and decisions

Ensure all the funds activities have been appropriately documented with minutes, and that all copies of all statements and schedules are on file for the accountant/administrator and auditor.

16. Double Dipping! June contributions deductible this year but can be allocated across two years.

Those clients who may have a large taxable income this year (large bonus or property sale) and are expecting a lower taxable next year, should consider a contribution allocation strategy to maximise deductions for the current financial year. This strategy is also known as a “Contributions Reserving” strategy but the ATO are not fans of reserves so best to avoid that wording!

17. Market valuations – now required annually

Regulations now require assets to be valued at market value each year, so ensure that your client’s have re-valued assets such as property and collectables. For more information refer to ATO’s publication valuation guidelines for SMSFs.

18. In-house assets

If your client’s fund has any investments in in-house assets you must make sure that at all times the market value of these investments is less than 5 per cent of the value of the fund. Do not take this rule lightly as the new SMSF penalty powers will make it easier for the ATO to apply fines for smaller misdemeanours.

19. TPD Insurance (total permanent disability – basically “never work again” insurance)

Have you reviewed your client’s insurances inside and outside of super? Check their TPD policies owned by the fund for own occupation definition as the rules about deductibility for these policies have changed.

20. Do you need to update to a corporate trustee?

We recommend a corporate trustee to all our clients. The benefits far outweigh the costs and the application of new penalties “per trustee” strengthens the case for a Corporate Trustee over multiple individuals.

21. Check the ownership details of all SMSF investments

Make sure the assets of funds are held in the name of the trustees on behalf of the fund and that means all of them. Carefully check any online accounts that may have been set up without checking the exact ownership details. You have to ensure all SMSF assets are kept separate from your other assets.

22. Review estate planning and loss of mental capacity strategies.

Review any binding death benefit nominations (BDBN) to ensure they are valid and still in accordance with your client’s wishes. Also ensure they have appropriate enduring power of attorney’s (EPOA) in place to allow someone to step in to their place as trustee in the event of mental incapacity or death. Does your client know what their deed says on the subject? Did you know your client cannot leave money to stepchildren via a BDBN if their birth parent has predeceased your client?

23. Review any SMSF loans

Has your client made all the payments on their internal or third-party loans? Have they looked at options on prepaying interest or fixing the rates while low? Have they made sure all payments in regards to limited recourse borrowing arrangements for the year were made through the SMSF trustee? If they bought a property using borrowing, has the holding trust been stamped by the state’s Office of State Revenue?

Liam Shorte is a director at Verante Financial Planning